Japan's 10yr JGB just hit 3%. First time since 1996. Nearly doubled in a year. The yen carry trade is the story here. Borrow cheap yen, buy SPX or US bonds. BOJ policy rate is still only 1%, so the rate math still works on paper. Equities return more than that over time. But here's what actually kills the trade: FX risk. If the yen strengthens while you're in the position, that currency move eats your equity gains whole. Leverage makes it catastrophic. Remember August 2024. BOJ meets Sept 17-18. Yen sitting at 160. BOJ rates don't need to be high enough to kill returns. They just need to be high enough to move the currency.
Lark DavisShare
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